GR 210528; (November, 2018) (Digest)
G.R. No. 210528 , November 28, 2018
COMMISSIONER OF INTERNAL REVENUE, PETITIONER, VS. J.P. MORGAN CHASE BANK, N.A. PHILIPPINE CUSTOMER CARE CENTER, RESPONDENT.
FACTS
Respondent J.P. Morgan Chase Bank, N.A. Philippine Customer Care Center (J.P. MorganPhilippines) entered into a Task Order with PeopleSupport (Philippines), Inc., a PEZA-registered export enterprise enjoying an income tax holiday. Under the agreement, PeopleSupport leased its physical plant space, voice and data infrastructure, and other transmission facilities to J.P. MorganPhilippines for a fee. From May to July 2007, J.P. MorganPhilippines paid PeopleSupport and withheld corresponding taxes, which it later reimbursed upon realizing PeopleSupport’s tax holiday status. J.P. MorganPhilippines then filed for a tax refund.
The Court of Tax Appeals (CTA) Second Division initially denied the refund, ruling the lease was outside PeopleSupport’s PEZA-registered activities, making the income subject to regular tax and the withholding proper. Upon reconsideration, the CTA Second Division reversed itself, granting the refund. It held the lease was part of a package of infrastructure and IT support services related to PeopleSupport’s registered activities, thus exempt. The CTA En Banc affirmed this reversal.
ISSUE
Whether the income derived by PeopleSupport from the lease of its transmission facilities to J.P. MorganPhilippines is subject to regular corporate income tax, thereby making the withholding tax correct and the claim for refund invalid.
RULING
The Supreme Court GRANTED the petition, reversing the CTA En Banc. The income from the lease is subject to regular corporate income tax, and the withholding was correct; thus, no refund is due.
The legal logic centers on the principle that tax exemptions must be construed strictly against the taxpayer. PeopleSupport’s PEZA registration and incentives are limited to its approved activities. The Court examined the nature of the agreement, which was essentially a lease of physical plant and transmission facilities, not an integrated service. This lease constituted a distinct activity of making property available for use by another for a fee. Revenue Regulations No. 20-2002 explicitly states that income from activities not registered with PEZA is subject to the regular income tax rate. The Court found that leasing property is not inherently related to PeopleSupport’s registered IT and business process outsourcing services. It is an independent source of income, a passive letting of assets, which was not covered by its PEZA registration. Consequently, the income therefrom did not enjoy the tax holiday and was correctly subjected to the regular 30% corporate income tax. As a withholding agent, J.P. MorganPhilippines was legally obligated to withhold the tax, and its subsequent reimbursement to PeopleSupport did not alter this obligation or create a right to a refund from the government.